Posts Tagged ‘MadMoney’

Mad Money Recap, April 1, 2010

Friday, April 2nd, 2010

Jim Cramer’s focus on today’s show was how to get back to even. The great rally of 2009 has not canceled out the losses many investors suffered. The reality is that stocks are the best way to recoup your losses. Getting back to even may not be easy, but it is a real possibility. Once you buy a stock, many professionals will say take a hands-off position. They will tell you not to worry about any gyrations in the stock. They think the best way to make money is to ignore short-term fluctuations in the stock. Jim Cramer’s position is the opposite. Purchase when the stock is cheaper and sell once it rises significantly. Stocks are no different from any other kind of merchandise. If somehow the expectation is that you once you like a stock you should like it at any price. That is simply not true. Price matters. The risk profile of the stock changes when its price jumps.

Think of a stock as a nice sweater that catches your eye at the mall. You will pay for it at the best price, not the highest price. We should view stocks in the same way. Nobody likes to overpay for any products or services. You go shopping when there is a sale and the same principle holds true for stocks. You have to take advantage of the opportunities the markets throw at you every day. The price of stocks does matter, but you must pay attention to the short term fluctuations in price and take advantage of them. Investors must become more like traders.

Things aren’t always what they seem. You must learn about the underlying fundamentals of a company to keep current. They matter a whole lot. Just about anyone who tries to understand the fundamentals can do it. It’s not as tedious as people think. Look at publicly available information. Start to read the facts, the profits will follow. That will give you an edge, especially to get back to even. The better you are at avoiding stocks with a risk reward that is changing from good to bad, or the reverse, courtesy of your homework, the better positioned you are to take calculated and intelligent risks in order to rebuild your capital more swiftly.

Investing in initial public offerings (IPOs) is a quick way to make money in the stock market, but there are some significant risks. You need to learn the key elements to look for. Don’t let the brokers trick you into believing you will make a lot of money in every IPO. Some aren’t worth investing in at all. You can accurately figure out which ones will soar and which ones will tank. It’s about analysis. When the market turns south, difficult to make money, the brokers like to throw investors such easy wins – IPOs that are underpriced. When times are tough, the brokers want to get you investing and that includes under pricing some IPOs. The rationing process is the trick to a successful IPO. The syndicate desk knows how this works. They gauge how much stock should be available to mutual funds. It can be beneficial to retail investors because there is usually more stock available for them because they are more likely to buy and hold. You shouldn’t get in an IPO if it’s already trading on the open market.

The Right IPO

The euphoria of potentially making a lot of money can cloud your judgment. You must know how to analyze hot from cold IPOs. The company’s pedigree is important. You must care about who the executives, investors and brokers are. Some many of the best deals represent technology companies and they revolve around an invention much more than a management team. You must see one seasoned player in the midst, like Eric Schmidt who was hired by Google. He had a long history of accomplishment. The list of investors is important. You should steer clear of those funded by private equity companies anxious to cash in on a better market – Blackstone and KKR, for example. They cannot be trusted. Some publicly traded companies aren’t worth even being listed on any stock exchanges. Regulators don’t have a mandate to judge the quality of IPOs; they just make companies disclose many facts and financials as possible so you can judge for yourself. Look at the brokerage houses bringing the deal. You want to see the bigger companies such as Goldman Sachs, Morgan Stanley and Credit Suisse, bringing these deals. They put their reputation on the line when they bring these companies public. They won’t put their name on just any company. Only after you have gone through this vetting process, only then should you consider taking a look at what the particular company is all about.

How to analyze the company

You have to assess what the company makes, it is profitable and you need to know how big its end market is. Figuring out what the company does is easy, if it is a brand such as Under Armour or Crocs. Sometimes it is hard to figure out what the company does if it involves a sophisticated product – wide area network computing companies, for example. First ask yourself if the company has a product you like. When the company has a good product, solid financials and is already profitable, then you will catch both the gains from the initial first day run-up and from an extended run afterwards, as in the case of Under Armour. To analyze an IPO you have to look at the addressable market. See whether the company is profitable and the brokers’ pedigree.

Janet Shan

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Mad Money Recap, March 31, 2010

Thursday, April 1st, 2010

Being a stock detective will go a long way in helping you to make better investment decisions. When it comes to analyzing stocks, Jim Cramer considers himself a fundamentalist. He believes that the best way to buy stocks is to make decisions based on the facts. You must analyze the facts about the underlying companies and their future. You must read the company’s earnings releases, listening to the conference calls and reading the SEC filings. You must do stock detective work, so to speak. The fundamentals tell the most important things about the stock, but it’s not the whole tale. You must look at the charts, also known as technical analysis. A lot of investors rely entirely on the pattern they see in the charts to predict where the stock will go in the future. You can’t rely on that too heavily. You have to do good old fashion homework. Chartists give you the necessary clues to detect a stock’s actions, nothing else. You must understand the limits of what the technical analysis is telling you. It can help you figure out what is in and what is out of style.

You need to know where the big money is heading. The technicals help you spot moves the big money might make, so you can be one step ahead of the game. You must understand the mechanics of money management, which will take you a long way in understanding the market. A good technician helps you spot sophisticated patterns that mimic what money managers may want to do. You need the complete picture. You must research the company behind the stock. The buying and selling of institutional money managers determine where the stock is going in the short term. Though, you must not buy a stock solely based on the technicals. When you buy a stock based on the fundamentals, you have a good justification to buy, even if the stock is going down.

You must realize that putting your faith in academics is not necessarily correct. All the armchair players in the press who claim to analyze the stock market rarely know anything about how the stock market works in practice. You must be wary of their advice. Professors and economists have little experience in analyzing the stocks and the stock market and they should be ruled out before they do damage to your portfolio. The reality is that you should not own a stock because someone told you to buy it. You must do your homework – research the fundamentals, listen to conference calls, read earnings releases, etc. Don’t get burned because you invested in a business model someone else suggested.

Avoid the fearmongers. They are always trying to scare investors about where we are. There will always be bears trying to frighten you. You must be able to recognize when they are trying to frighten you with a historical analogy such as the U.S. teetering on the verge of the Japanese “lost decade” experience. That doesn’t mean the U.S. will have a similar outcome. These are two structurally different economies. The U.S. isn’t about to experience hyperinflation, as evidenced in Weimar, Germany. You have to learn to separate fact from fiction when managing your investment portfolio.

How can you tell that a company’s prospects are improving? Inventory matters in a huge way, especially when credit is tight. Inventory has to be financed. You have to keep credit to have inventory. Businesses cannot improve until they get rid of excess inventory. Excess inventory is a bad sign, while shrinking inventory is bullish. Take the semiconductors for example, they bottomed out in 2009 and their stocks rose when the inventories were low and they began to replenish their stocks. The banks must also become healthier in order to jumpstart a new business cycle.

Don’t assume a stock is a good buy because it is listed on the stock exchange. Some are headed for bankruptcy or liquidation, even though they are listed. They are zombie stocks. For example, General Motors was allowed to remain on the stock exchange even though it entered filed for bankruptcy on June 1, 2009. Yet its stock continued to trade for over a month. Fannie Mae and Freddie Mac were also allowed to keep trading even though they were taken over by the federal government on Sept. 8, 2008. The reality is that not every company in the market has your best interest at heart. You have to do your homework.

Janet Shan

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Mad Money Recap, March 30, 2010

Wednesday, March 31st, 2010

One of the most pernicious myths is the notion that the market is always rational and that its actions always make sense. That is furthest from the truth. The action in the market can be completely nonsensical on some days, while the opposite is true on other days. Sectors can move for bogus reasons. Trying to find the logic behind random moves is not possible. The market doesn’t always make sense. You should take advantage of the irrationality. Whenever we get a huge pull-back, there will be a lot of stocks that went down for bad reasons, some just because the sector is down. As a result, some investors may panic and react by selling stocks. You have to draw a line between the notion of observation and the notion of explanation. The sell-offs are not about the fundamentals of the underlying companies. They are about the fundamentals of the money management business.

Money managers and hedge fund managers were able to pool vast amounts of money together that they ended up dwarfing individual stocks. The hedge funds gravitated to the futures market, which were far bigger than the actual markets. They developed a groupthink. They started to trade in sync with each other. The height of the groupthink occurred in 2008, when so many hedge funds bought the same commodities and sold the same commodities. They bought all these commodities with other peoples’ money. As a result, some brokerage houses collapsed and were forced out of business. The reality is that they were positioned wrong. Their very survival was at stake. This behavior still occurs today and the best thing you can do is to pick some value stocks and stick with them.

Initial public offerings (IPOs) and secondary offerings are two ways in which you can make money almost immediately, but you have to understand how the corporate credit market works. We have far too many indebted companies in this country after the big boom of the 2000s when they just added a lot of debt to their balance sheets. They are now selling shares through secondary equity markets. They use that money to pay down their debts – deleveraging. In the short-term, it’s not great, but as an equity offering creates new shares of stock, those additional shares makes each preexisting shares less valuable – dilution. There are secondaries where the stock surge much higher after the deal. If you can identify those stocks, you can make money quickly. Many of the stocks during secondaries are wrapped up in a virtuous bullish cycle involving debt. When share prices go down, that allows them to raise more money selling the same number of shares on the secondary offering. The money from the secondary improves the company’s balance sheet, which takes some worries off the table. This sends the stock higher as it refinances its debt. This is how the capital markets work.

Corporations don’t borrow money the way you and I do. They have to go to an investment bank that will help them issue bonds either through a private placement or a public offering. The company will then sell the bonds and pay the bondholders interest each year on the money it borrowed. This goes on until the bond matures, when the principal comes due. Some of the best secondary offerings we have seen recently come from the companies who were most indebted. For example, U.S. Steel Corp.’s (X) stock surged for a 44% gain over 30 days, all because of a secondary offering. Ford Motor Co. (F) had a 30% gain in three weeks after a secondary offering. The banks and bondholders literally forced these companies to raise more capital through a secondary market.

Actual mechanics of secondary offerings:

Not every secondary offering is an opportunity to make a fast gain. Some have amounted to huge giveaways, where in a matter of days the stock rises above the print price, which is the price where the secondary happened. Purchase things that you don’t initially care for. You should like the price. You have to watch the news tape or agate section of the newspaper, to know which companies have a secondary. It also helps to have a full-service broker, who will alert you to these deals.

You must also check out the demand of the stock and ascertain how many people want to purchase shares of the stock. You must check with the syndicate desk, which places the stock, to get that information. At the right price, the brokers know that the big institutional money managers will buy the secondary and keep on buying in the open market, which will drive the stock up after the print price. You shouldn’t buy all at once. For example, purchase 100 shares first. See if it breaks the print price and goes below and then buy more. That means the stock wasn’t “softened” enough. You also want to see after the secondary is priced and trading the broker will support the bid to stabilize the market. Stabilizing means that the brokers are trying to keep the stock at one level until other buyers come in. You have to care about the demand for the stock as much as the fundamentals of the company. You need your broker to help you gauge the demand of the stock.

Lastly, Jim Cramer covered the issue of buybacks. He said you should not trust stock buybacks. They have become increasingly popular in recent years, with the startling revelation that all the companies in the S&P spent $1.73 trillion on stock buybacks over a short period of time. These buybacks haven’t given produced the value many people thought they would and have been more of a waste of corporate money in some cases. If you see a company with a large buyback and a small dividend, you should be wary because they bought back those shares at much higher prices. HMOs such as WellPoint (WPT), United Healthcare (UNH) and Aetna (AET) are three of the largest buyback culprits who purposefully kept their dividends small. Insiders were selling some of their stocks as the companies were buying back stocks. Executives like buybacks a lot to generate cheap earnings per share. The EPS is the net income divided by total number of shares. A buyback is a great way to create the perception of growth. The buyback will give you a bigger EPS, for example. Buybacks by themselves are no reason to own a stock. It can be considered as a reason for selling the stock. They are a false sign of health and all too often are a waste of shareholder’s money.

Janet Shan

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Mad Money Recap, March 29, 2010

Tuesday, March 30th, 2010

On “Mad Money” March 29, Jim Cramer talked about must-use techniques in purchasing stocks and managing your portfolio. He said actively investing in stocks, rather than having someone else manage your money or waiting for index funds to appreciate, is essential in the wake of the crash of 2008. He suggested spending five to 10 hours weekly managing your portfolio and doing the research. Mimicking the market’s returns rarely works. You have to put in the time by actively managing your portfolio and doing the research. You can beat the averages, but you have to exercise some patience and determination.

The “New Highs List”:

There are a few tools of the trade to pick stocks and manage your portfolio. Watching the “New Highs List” is one tool that never fails. The stocks on the “New Highs List” have something going for them, especially when the market is in bad shape. Either its part of a genuine bull market or it has some serious momentum. Many stocks on this list often keeps going higher and higher. There are some caveats to this however. It is still a good place to start. There is more continuity than change. Only when there are shifts, then you have to change course. Therefore you have to keep doing your homework. There have to be special circumstances. For example, on Monday’s “New Highs List” Cliffs Natural Resources Inc. (CLF), which is a mining and natural resources company that produces iron ore pellets, lump and fines iron ore, and metallurgical coal, surged $1.59 to close at $72.95, after setting a new 52 week-high of $73.95 before pulling back $1.00. This would be a stock to put on your watch-list.

Wait for something to pull back from the “new high list.” It gives you a good lower price entry in a stock. You must always be conscious of price. Purchase on weakness, sell on strength. You should purchase these stocks if you are confident of a comeback. Make sure they haven’t pulled back for a good reason and not just the market pulling back. If the fundamentals haven’t changed, it may have pulled back for mechanical reasons – profit-taking, etc. These reasons should have nothing to do with the fundamentals of the company. If the opposite is true, the stock is no longer a candidate to be purchased.

Finding Great Buys:

You can get a better deal if you are patient and wait for some weakness. There are cases in which buying off the new high list is justified, especially, if the stock is so “hot” because it’s not going lower in the near future. If that is the case, which is a rarity, it would be wise not to buy all the shares at one time. For example, purchase 25 shares first. There is one exception. If your research uncovers insiders buying colossal amounts of stock when it’s at its 52 week high, then that is a great sign of their confidence in the business. The reality is that these insiders don’t think there will be a pull-back in the stock price. Still, you must do the homework and check the fundamentals about the company, including reading through the transcripts of the conference calls.

When a stock has a huge short position is also a great time to purchase shares in the company. There are a lot of people who have serious conviction that the stock is going down. The potential downside is infinite. If there are a lot of short-sellers, you get a short squeeze. In order to bail on their position, they have to buy more shares to cover their positions and close out their losses. This will cause the stock to surge. Similarly, when a company with a heavily shorted stock announces a buyback some of its shares, that is also a good sign. A substantial new buyback in the face of shorts is a good sign and worth a second look, however, you must proceed with caution. The balance of power has shifted in favor of the shorts and against you; therefore, you must avoid situations where the shorts are determined to crush the stock at any cost.

How to Trade Stocks:

Trading around a core position is paramount. Trading is about profiting from short term fluctuations in stock. Knowing how to trade makes you a better investor. First, pick a stock you believe will go higher over the long term, though it will get tossed around by market volatility. Buy in increments. For example, you want to buy 300 shares of Boeing. You should do so increments – 100 shares three times — over a period of time and that would be your core position. Every time the stock rises, you sell some shares to a shave off a profit. Wait until something knocks the stock down, you buy it back in increments. Over time your profits add up and that is what trading around a core position is. It is the height of prudent portfolio adjustment. There are rules to follow. Avoid putting yourself in a spot where you have too much or too little shares of the company.

Using options is the ultimate method of taking your trading to the next level. This will allow you to net small gains that will add up over time. When you have a stock with a lot of momentum, you need to know when to get out. The key to figure out when interest has piqued in a stock and it’s time to sell is by watching the Wall Street analyst coverage. Once hot stock has at least four analysts covering it, the means the run is almost over. It is a good gauge of how much interest and awareness there is in a particular stock. Hot stocks get tapped out when there is nobody left to be attracted to them. All the people interested in purchasing the stock have already done so. It is time to sell. It’s better to take your winnings than wait until the stock starts to cool off. Once too many people know about the stock, the stock will run out of steam and will never recover to the initial stock surge.

The steps given by Jim Cramer are common sense moves for any prudent investor. It takes time to understand and learn how to trade to effectively maximize your profits.

Janet Shan

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Cloudy Focus

Friday, February 12th, 2010

On Feb 5th, I saw Jim Cramer’s “Mad Money.” For the record I think Jim’s show is great (that’s right we are on a first name basis). It is rare to find a financial show that can educate and entertain on a consistent basis and Jim has clearly mastered this.

During this episode he talked about the current earnings season results and how many of the companies were blowing away the estimates. My sentiment is analysts have been watering down earnings estimates, since the economy is such a tough spot. This watered down effect makes it much easier for companies to surpass earnings estimates. In my opinion the majority of companies that are surpassing their earnings estimates are doing so because of deep costing cutting and productivity gains, and not so much from top line growth. But this is not the focus on this post.

What I was most shocked by during the show was Cramer’s statement, “Earnings this week will overshadow Europe and the unemployment figures….” My jaw dropped! Nothing could be further from the truth! Unemployment is a central theme in economics and politics at this critic juncture. The unemployment rate is at its highest since the early 1980s. We have roughly 10 million people unemployed. That is not a modest figure! The employment situation made the President do an about face and shift his focus from purely health care to JOBS and health care.

Across the Atlantic, the PIIGs (Portugal, Ireland, Italy, and Greece) debt situation has the entire world’s attention. Today the EU stated that they will aid Greece with their debt problems. Unfortunately, the details of this aide are sketchy at best and there was no mention of any assistance for any of the other debt-laden EU zone nations.

The employment and EU debt saga has totally eclipsed every aspect of the investment community. Sorry to say it, Jim was wrong about this one!

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Cramer’s Jolly Retail Report is a Bit Ho-Ho-Hum

Sunday, December 13th, 2009

On last Thursday’s Mad Money episode, Jim Cramer sang the praises of the retail sector, telling viewers “the prevailing wisdom on Wall Street is just too negative”. While I agree that there is some truth to that, I don’t think the bulls are loose either. And an even bigger issue is the way many of the “iconic” brands that Cramer likes do business. Some of these change-resistant corporations have been slow to update their business models. But I think that the post-recession consumer market will dictate some changes to how retailers stay profitable and unless these companies adjust, they could be in big trouble.

Cramer and I see eye to eye on the housing sector. Thanks to the first time homebuyer’s credit, many consumers bought homes this year. Along with a new house comes a desire to fix it up and the trend toward home improvement has been clearly seen through the performance of a few of Cramer’s picks. Sherwin-Williams (NYSE:SHW) has performed well for the year, even during the recession. And Home Depot (NYSE:HD) and Masco (NYSE:MAS) have done very well, both posting gains of more than 20 percent for the year. As the recession eases, I fully expect these stocks will continue to rise, as does Cramer.

On the other hand, Cramer likes retailers. Even the bloated, old-fashioned ones like Macy’s (NYSE:M). I think Macy’s is a disaster. The company is up 55 percent for the year, but it’s still only trading at around half of its year-high. And that’s with the retail season in full swing. Cramer also likes Target (NYSE:TGT), which is up substantially for the year and has almost recovered its trading high. Target definitely looks better than Macy’s to me, but the problem for both of these stores is that what’s saving them right now are their lesser-known housewares segments, while their main product departments have gone stagnant. Macy’s apparel is staying firmly on the shelf and, as Wal-Mart improves its product lines, Target has been steadily losing its appeal to mass-retailer audiences.

Online retailers, though, like Amazon (NASDAQ:AMZN) and Overstock.com (NASDAQ:OSTK) are doing great. With the rise of Cyber Monday, I think that consumers will increasingly turn to the ease, convenience and comfort of online shopping. If so, I expect that online retail stocks will be on the upswing for some time.

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Cramer’s position on tech a smart stance

Sunday, December 13th, 2009

On last Wednesday’s episode of Mad Money, Jim Cramer spent a little time talking tech stocks. Due to a slight pullback, some analysts were concerned that another tech bubble was going burst. Cramer, however, saw it differently and recommended that his viewers take advantage by buying in. In making his picks, I think Cramer definitely got it right.

It’s true that Amazon (NASDAQ:AMZN), Apple (NASDAQ:AAPL), and Google (NASDAQ:GOOG) took a little bit of a dip lately. But, these stocks are all trading around their year-highs and they have all increased exponentially over the past year. They are also all trading at very high levels compared to more classically-modeled companies. So, a slight decline on these will naturally look bad, since they have so far to fall. But, these corrections are no different in percentage than other sectors have been experiencing. All three of these companies have shown a willingness to adapt to the changing marketplace, and because of that, I think they will continue to be profitable for some time.

Almost ten years after the dot-com bubble, some traders are still wary of tech stocks. But, I think the market’s a little wiser as a result of the internet crash. Instead of every tech company being viewed as an instant money machine, a few well-managed corporations have risen to the top, just as in other sectors. So the risk of another catastrophic implosion is much smaller. Cramer wisely advises investors to use tech stock dips like this to venture into the waters. I think this is an excellent idea. Since tech is somewhat volatile, a savvy buyer who jumps in while the water’s warm can become profitable rather quickly.

Let’s not kid ourselves. Technology is not going anywhere anytime soon and our dependence on it is, in fact, growing by the year. If you’re a trader looking for a relatively stable investment strategy, don’t fear the tech sector. Now that the initial internet hysteria has calmed down, tech stocks are maturing into a safe, long-term investing vehicle.

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Mad Money recap – Jim Cramer “Pfizer will have growth in 2012″

Thursday, December 10th, 2009

Lightning Round: United Security Bancshares, Terra Industries, Pfizer and More

The most recent episode of Mad Money included a look at Pfizer. Cramer thinks there will be growth in 2012.

Pfizer is positioned to grow

Pfizer is positioned to grow

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